Soc Gen: Gold Heading For $1,375, and Here’s What Could Cause A Crash

By Brendan Conway

Societe Generale’s Patrick Legland and Michael Haigh outline what they think it would take to send gold’s price into a 20% or 30% crash. Mind you, they don’t think it’s particularly likely.

Actually, scratch that. They sound even more bearish today than they were several weeks back, when the firm made what was immediately the outlier bearish gold forecast of $1,375 at year end. That’s roughly 13% below this afternoon’s price of $1,577.

The duo puts the chances of a crash in gold’s price at “less than a 20% probability” — which, agree or not (I’ll guess if you’re reading this post, not), has to be part of what’s giving the gold market the jitters on Tuesday. It’s an outright bearish thing to say.

SocGen’s answer to the crash question, by the way, is what you’d expect: a “perfect positive macro storm.” By this, they mean factors such as fast global GDP growth, a strong dollar, low inflation expectations, gold ETF outflows, and a swift rise in interest rates. All of which seem unlikely to happen all at once. Not any time soon.

From today’s note:

The gold price is, in our view, in bubble territory. Investors have pushed the gold price sharply higher over the past 10 years with the past five-year rally driven by fears that aggressive central bank QE would lead to very high inflation. But inflation has so far stayed low (US inflation has been trending lower since late 2011) and now we are beginning to see: 1) the economic conditions that would justify an end to the Fed’s QE; 2) fiscal stabilisation that has passed its inflection point; and 3) a US dollar that has begun trending higher. It seems unlikely that investors would want to add much to their long gold positions in this context. If so, the gold price would trend lower at pace as the physical gold market is seriously oversupplied without continued large-scale investor buying. Selling by investors would add fuel to the fire.

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APRIL 2, 2013 2:45 P.M.

Socgen doing its part to prop up the dollar wrote:

Socgen called for $2,000+ gold before QE3. They estimated QE3 would be for $600 billion. Now that QE3 is far larger, over $1,000 billion+ per year with no end date, they call for lower gold.
So the logic is, increased money printing and global currency debasement will lower the price of gold in the long run?

Exactly how dumb do these banks think we are?

I don't know what is more sad.

1) the fact that banks like SocGen think we are dumb enough to believe global accelerating Money Printing and Debt combined with little to negative global GDP growth is bad for gold...

Or

2) the fact that the Chinese are taking advantage of this temporarily gold suppression by increasing their annual purchases from 100 tons per year to now over 1,000 tons per year.

Within 5 to 8 years at the present rate of US sponsored bank gold shorting as seen in the COT report, the US will have sold most its gold in our attempt to keep treasury rates low and confidence in the dollar high. And China will hold more gold than the US does now and have a higher GDP. The banks know this end game. But for now they are willing to sacrifice the future to keep borrowing costs artificially low for a while longer.

China is buying gold at 7% of reserves, versus their stated 2%. Within the decade they will use that reserve to back a new global currency. All this gold suppression will achieve is a faster end to the US dollar as the sole global currency. When that transition begins, the collapse in confidence will be sudden and unstoppable. Unfortunately the US will no longer have the gold reserve to repair the balance sheet and China will become the dominant financial superpower.

So thanks SocGen for doing your part to prop up the dollar despite higher $1 trillion per year printing and a weak western economy. You think you are helping the western world by talking down gold, thereby keeping confidence high and interest rates low, which keeps the $2,000 Trillion in derivatives sustainable for now.. In reality you are part of a corrupt government / financial system that is sealing our fate by ensuring the next crisis takes us all down.

APRIL 2, 2013 3:27 P.M.

GLDGUY wrote:

Short term pullback, sure. Long term, watch out---gold spike and dollar crash

APRIL 2, 2013 3:54 P.M.

Mark wrote:

Another paying clown. Looks like thing are real bad..

""Today’s Massive Attempt To Break Gold
April 2, 2013, at 8:32 am
by Jim Sinclair in the category General Editorial |

My Dear Extended Family,

This is a massive attempt to break gold in order to camouflage the weakening Western banking sector. Paid BASHERS (Like that one above) are flooding in to all pro-gold sites and many other pro-gold sites are under attack in other ways.

Gold banks are flogging the paper market seeking to depress the price but without selling too much.

It is so obvious that this is a gold bank organized strategy to keep gold under $1600. Old lows will hold and the reversal will be at a spiritual level.

My strategy is to simply to do nothing."

APRIL 3, 2013 1:11 P.M.

Jen wrote:

Interesting comment by Socgen doing its part to prop up the dollar. Can you explain how keeping gold suppressed helps the $2000 Trillion derivatives market to be sustainable for now. What are the derivatives in? Also, by derivatives do you mean options, futures, or something else? Thanks!

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